Lankaputhra Bank to crackdown on loan defaulters

Sri Lanka's state-owned Lankaputhra Development Bank (LDB), ruined by the Rajapaksa regime by giving massive loans to their cronies and allowing them to default public money, is to be directed towards a correct path following the new government's social market economic policies, the head of the bank told Business Times.

Bank Chairman Lasantha Gunawardena said that considering its strategic importance for the Government's economic development agenda, LDB plans to play a pivotal role in promoting local enterprises while taking every possible step to recover dues from loan defaulters.

He disclosed that due to imprudent decisions taken by the previous management by omitting due diligence on the direction of powerful politicians, the former Finance Minister ( Mahinda Rajapaksa) and former Treasury Secretary P.B. Jayasundera, the bank is now going through a hard time.

The bank has already adopted a selec- tive approach in expanding its loan portfolio, he said, adding that they are exploring the possibility of taking stern legal action against defaulters.

Revealing details of massive ruination caused to LDB using it as a Rajapaksa family bank, Mr. Gunawardena in a phone in interview with Business Times, noted that loans amounting to over Rs. 1.6 billion had been given to around 700 enterprises and individuals on the directions of the top officials and powerful politicians of the previous regime.

Around 150 small and medium scale loan defaulters and 20 companies were among them, he disclosed. These 20 companies were given loans totalling between Rs. 200 million to Rs. 300 million.

"Some of those loans have been converted to bad debt," he said.

"The non- performing loan ratio as at 31st January 2015 was 48 per cent. With our efforts it has come down to 40.88 per cent as at 30th April 2015," he revealed.

The outstanding amount was over Rs. 1.9 billion with accumulated interest ( Rs. 1,913,546,376.76) as at 30th April 2015, he said, adding that these loans were taken from the bank during 2006 - 2014 periods.

A sum of Rs. 173.5 million ( Rs. 173,515,813.36) had been disbursed among 262 recipients as loans during the run- up to the January 2015 presidential election period.

Most of the high value loan defaulters are politically connected to the previous regime. Therefore the bank officers were reluctant to take action against them due to fear of their lives, Mr. Gunawardena said.

But this fear psychosis is not there anymore and the bank officers have been directed to take prompt action of debt collecting without any interference, he pointed out.

"After we undertook the management, we saw that a massive amount of loans has been given to a selected group of people without proper collateral," he said.

Mr. Gunawardena noted that a sum of around Rs. 5 million has been given on a directive issued by the Treasury officials during the previous regime, by keeping as collateral some semi-precious stones with a valuation of Rs. 1.4 million certified by the Gem and Jewellery Authority.

"But during an audit inspection recently, we found worthless quartz stones in the safe. The bank has lodged a complaint with the Police Financial Crimes Investigation Division," he added.

Another loan of over Rs. 30 million had been given with a deed of a temple as security, he disclosed. It has been revealed that the deed was produced without the knowledge of the Buddhist priest, the chief incumbent of the temple.

A cheque for Rs. 100 million from the bank was handed over to a person connected to a politician at the office of a minister and the borrower was told that it was not essential to repay the money. He has now realised that he has to pay back the loan, the chairman said.

Mr. Gunawardena revealed, that a Rs. 75 million loan was given to a stooge of a powerful politician in Trincomalee to manufacture boats.

"There was no proper procedure followed in disbursing the loan. A few boats have been produced and these were used for human smuggling," he said.

Another loan of Rs. 4.6 million has been taken from the Lankaputhra Hambantota branch producing false documents using signatures of 10 army officers.

Mr. Gunawardena said that a sum of around Rs. 200 million has been given to a company on a directive by Dr. Jayasundera.

Another businessman became the beneficiary of a loan of Rs. 330 million due to political influence and on a letter sent by the Presidential Secretariat and the loan was given without proper due diligence, he said.

LDB was set up in 2006 to finance small and medium enterprises despite the existence of other commercial banks with large branch networks.